US manufacturing activity experienced its strongest expansion in four years during May, with the S&P Global flash factory purchasing managers index rising 0.8 points to 55.3, according to data released Thursday. The index, which measures manufacturing activity above 50 indicates expansion, demonstrates how the Iran conflict is providing temporary support to the sector. This surge reflects customers rushing to stockpile goods ahead of mounting price pressures tied to the ongoing war. Meanwhile, the Eurozone Manufacturing PMI fell to 51.4 in May 2026 from 52.2 in April, marking the softest expansion in three months as the Middle East war-related demand boost from stock-building faded.
The Iran conflict has created an unprecedented oil inventory crisis, with U.S. crude oil inventories decreasing by 7.9 million barrels during the week ending May 15, bringing commercial stockpiles to 445 million barrels, about 2% below the five-year average for this time of year. According to Goldman Sachs analysts Yulia Zhestkova Grigsby and Daan Struyven, global crude and fuel inventories are falling at an unprecedented rate this month as the Middle East conflict continues to disrupt supplies. The analysts noted that visible oil stockpiles declined by about 8.7 million barrels per day in May, nearly twice the average pace since the conflict began. As per Goldman Sachs, estimated oil exports through the Strait of Hormuz remain at a very low 5% of normal capacity, creating severe supply disruptions.
The conflict's impact on manufacturing costs became increasingly evident as prices paid for inputs jumped more than 11 points to the highest level since June 2022, according to the S&P Global data. Composite gauges of both input and output prices advanced to their highest levels since 2022, with the cost of goods showing notable increases alongside services recording one of the largest price advances in four years. The Strait of Hormuz effectively closed to shipping of energy and other key manufacturing inputs, creating more pervasive inflationary pressures across the economy. In the Eurozone, input costs and output charges rose sharply, with input inflation reaching a 46-month high and output prices rising at the fastest rate in 39 months.
Despite the manufacturing gains, broader economic indicators showed concerning trends. According to S&P Global Market Intelligence chief business economist Chris Williamson, the data shows 'only modest growth of business activity as demand was again squeezed by a further spike in prices and jobs were cut as firms worried over rising costs and the economic outlook.' The report indicated that order book growth has slowed to its weakest for two years, with precautionary stock building due to price hike concerns unlikely to sustain indefinitely. In the Eurozone, business confidence weakened to its lowest since November 2024, signaling caution ahead as the Middle East war-related demand boost from stock-building and efforts to preempt price hikes and supply shortages faded. However, oil market sentiment has shifted dramatically, with Brent crude futures trading around $105.97 per barrel and WTI crude futures at $99.29 per barrel, as supply tightness from the continued blockade of the Strait of Hormuz and fresh inventory drawdowns reversed earlier losses.
